How to Start a Car Rental Business

Of course, you could opt to start with an existing car rental franchise. Or you could start your own car rental business. That way, you can tweak a proven money-making small business model into a setup that best fits your location and desired business size.

The Car Rental Industry in 20222

The global car rental market is booming. North America is the biggest player, with the US leading the way. Overall, the car rental company business was $92 billion in 2021, with the bulk of that ($57 billion) linked to tourism. The car rental business is predicted to reach $140 billion by 2027.

Why You Should Start a Rental Car Business

Why should you start your own car rental business?

  • More and more people are purchasing small, fuel-efficient vehicles for everyday use. Those people will still sometimes need a large truck or van for special purposes.
  • You’ve always loved cars.
  • It’s profitable.
  • You can start small and build. You can start a rental car service with one vehicle.
  • You have many options for your type of operation. Vehicle rental businesses can specialize, such as renting passenger vans, classic and exotic cars, a luxury car rental service, or delivery trucks and vans.

Starting a Rental Car Business in Ten Simple Steps

Buying an existing business can mean purchasing a franchise from a proven brand and business model, with an initial franchise fee, such as Avis, Hertz or Enterprise. Or you could purchase an existing rental business that an owner wishes to sell. Or you can start your own, which would take that proven business structure and build it the way you want it.

Learn how to start a car rental business with our chosen steps:

Research Other Car Rental Businesses

As part of your market research, look at other car rental companies and note the aspects of those operations that you think fit what you plan to do. For example, if you plan to offer classic car rentals or specialty vehicle rentals, you may make changes to the standard rental contract.

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Decide What Type of Vehicle Rental Business You Will Start

Car rental services have historically catered to business travelers. But according to statistics, the fastest-growing segment of the rental car company is the tourist.

If there’s an option for taking over an existing car rental business, do your due diligence. What’s the reason for selling? What are the ages/mileages of the rental vehicles? Is the business profitable?

Determine Your Target Market

Before you start your new business, brainstorm on what you believe will be your target market. Before starting a car rental business, you need to get a handle on who will most often be in the driver’s seat.

Short-term and/or long-term customers? Delivery or specialty vehicles? Luxury vehicles?

Choose a Business Name

First, check to make sure the name has not already been taken. Choose a name that reflects your target market.

Write a Car Rental Business Plan

Your business plan will have similarities to the majority of business plans, with some key differences:

  • You’ll need a strategy for implementing Covid-level cleaning and disinfecting of your car fleet, which is going to be a required standard for every successful car rental business.
  • Your main cost will be vehicles. Your start-up costs will depend on how many cars you can afford.

Choose a Business Structure

The majority of start-up car rental businesses choose the Limited Liability Company or LLC. These business structures protect personal assets.

Choose a Business Location

Car rentals need to be supported by a vibrant population. That’s one important factor to consider.

Another factor is the cost of licensing vehicles, as well as the business taxes that will be levied on your operation. You can find that information with the Small Business Administration. The Small Business Administration has an excellent chart with those figures.

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For example, if you locate your business entity in Vermont, the state will add a 15% rental tax onto your rental fee, plus a 9% surcharge and 6% state tax. Or, if you chose nearby Connecticut, there would be no rental tax, and you’d pay a 6.35% state tax and a $1 per day state tourism charge.

Open a Business Bank Account

Using your business name, start a separate business account, along with a designated business credit card. Business accounts should always be kept separate from personal money/assets and accounts.

Sort Out Your Business Finances

When you start your own business, you’ll most likely need a business auto loan.

Many rental vehicle companies affiliate with a car dealership, where they initiate a purchase or lease contracts. Using local car dealerships makes pickup and delivery more convenient. Of course, vehicle costs (business loans) will be the highest expense for small businesses in this field. The loans are costly but it is a good way to build business credit and support the future expansion of your fleet.

Purchase Business Insurance

Insurance is another large expense. At a minimum, you’ll need general liability, commercial and comprehensive commercial auto for fleet insurance. If you own or lease a location, you’ll need property insurance as well.

Get Your Taxes in Order

You’ll need an Employer Identification Number, or EIN, to set up a legal business entity. You’ll need this even if you’re operating a sole proprietorship because the EIN is necessary for filing state taxes.

Here’s where you may need to hire the services of business professionals, such as an accountant and business attorney. Here are the main taxes you may need to pay:

  • state tax
  • workers compensation tax (if you have employees)
  • tax fees by localities, such as cities and/or counties
  • Rents from Personal Properties – Must be reported on Schedule C as required by the IRS

Build a Website

Search engine optimization is important for every business website. If you don’t have the knowledge or time for this, hire a professional. You want people to be able to find you easily with an internet search.

You’ll also need a presence on various social media accounts, such as Facebook, which is another source for potential customers.

Market Your Business

In addition to your website, social media platforms and digital marketing, you can affiliate with local businesses. For example, a local lumberyard or furniture store may give your card to customers who need to rent a delivery vehicle, or a vehicle repair shop can do the same, for a customer who needs a short or long-term local rental. Retain customers but quickly respond to issues, especially breakdowns.

How much does it cost to start a car rental business?

Startup costs can range from $50,000 to $100,000. There are variations, such as the cost of the location to rent or lease, and the type and number of rental vehicles.

Is a car rental business profitable?

A low-end daily rental for a small vehicle is $40 and up, with a higher-end vehicle renting for $100 to $200 daily. You can expect to spend from $500 to $1,000 monthly in insurance costs. Your monthly fleet costs will vary according to your number of vehicles.

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